COVID-19 Developments and Legal Updates

*Last updated: March 31, 2020

Brian Tabor, QC, Matthew Newell, Colin Piercey and Madeleine Coats

On March 27, 2020, Premier Stephen McNeil announced further business supports in response to the ongoing COVID-19 pandemic. This includes a Commercial Rent Deferral Support Program. This program provides a government guarantee to rents deferred by way of Rent Deferral Agreement for the months of April, May, and June 2020.

In order to qualify for the government-backed guarantee, the Rent Deferral Agreement must be effective from April 1, 2020, and landlords must email their intent to register the agreement to the government by April 3, 2020.

The official releases from the provincial government can be found here and here. Guidelines for the program published on March 29, 2020 can be found here. This program is in response to the business closures ordered by the Medical Officer of Health on March 26, 2020 (full text here), and the suspension of landlord rights ordered by the Minister of Municipal Affairs and Housing on March 27, 2020 (full text here).

Commercial Rent Deferral Program

Landlords are being asked (but not compelled) to sign rent deferral agreements where the provincial government may guarantee up to $5,000/month if that business tenant must shut its doors. Landlords are being encouraged to defer rent payments from their commercial tenants for the next three (3) months (being April, May, and June), and to spread the deferred amount over the remainder of the lease term.

If you defer rent because your tenant’s business is shut down or impacted by the Health Protection Act orders, you could be eligible for coverage in the event of non-recovery as part of the COVID-19 Rent Deferral Support Program (“CRDSP”). If the tenant does not resume operations or is otherwise unable to pay the deferred rent, the CRDSP will provide a government-backed guarantee up to $5,000 per month, per tenant, for each of the deferred months. The recovery cap is currently set at $15,000 per tenant, and $50,000 per landlord. The total obligation of the Government of Nova Scotia under the CRSDP will not exceed $5,000,000, and the government reserves the right to pro-rate the total amount of indemnity claims in excess of this amount.

To be eligible for the COVID-19 Small Business Rental Deferral Guarantee Program, landlords must register a Rent Deferral Agreement with the Department of Business by April 3, 2020. This Agreement, the suggested forms for which can be found for Net Leases here, and for Gross Leases here, must be executed and emailed to NSRentDeferral@novascotia.ca. The rent deferral agreement must be in place by April 1, 2020, and submitted by April 3, 2020.

Alongside this program is the three (3) month suspension of landlords’ remedial rights in Nova Scotia. Further information on this order is provided below. In sum, the ability of landlords to enforce self-help remedies typically available in commercial tenancies has been suspended, and landlords cannot act upon tenant default within the next three (3) months in any event.

We have prepared answers to more specific questions below.

Is this program mandatory?

No, this program is being encouraged to landlords but is not mandated. It is encouraged as a way to support businesses adversely impacted by the COVID-19 response, and in particular those that have been ordered to shut down. This program is intended for those tenants who have been ordered shut (i.e. drinking establishments, salons, fitness facilities, or non-registered health practices), or “significantly restricted by” the health protection orders. In order to qualify, the business must be a Qualified Business. Many businesses remain operational through this period, and this program is not intended for these tenants. However, all commercial landlords are prohibited from changing locks or seizing property of any business tenant that cannot pay their rent, if the closure is as a result of the COVID-19 public health orders.

Which businesses qualify?

This program is ultimately designed for the businesses that have been forced to close, or significantly reduce their services, as a result of the various government orders in response to COVID-19.  This program is available for “Qualified Businesses.” To be considered a “Qualified Business”, a tenant must meet each of the following requirements:

• Is not a franchisee of a franchise network with establishments located outside the province;
• Is an active business as defined in the Income Tax Act (Canada);
• Is registered to do business in Nova Scotia;
• Is primarily engaged in one of the following business activities:
  • Gyms and fitness establishment;
  • Hair salon;
  • Barber shop;
  • Spa;
  • Nail salon;
  • Body art establishment;
  • Restaurants offering in-person dining service;
  • Drinking establishment;
  • Registered day care;
  • Craft brewery or distillery with tasting room;
  • Personal service business serving only individuals;
  • Dentist;
  • Massage therapists;
  • Naturopathic doctor;
  • Chinese medicine practitioner;
  • Acupuncturist; or
  • Live, performing arts for audiences.

As a Landlord, to qualify for this program, you must be renting commercial or retail premises to a Qualified Business in the province who has, prior to April 1, 2020, granted rent deferral to a Qualified Business as a result of the Order, with rent deferral being for the period between April 1, 2020 and June 30, 2020.

If you have questions about a specific circumstance, please don’t hesitate to contact us.

Can we negotiate terms?

The Province has provided sample forms for the format of the contract, and required that they be effective as of April 1, 2020. To qualify for CRDSP, a Qualified Deferral Agreement is an agreement between a Qualified Business and a Qualified Landlord, agreed to by both parties between March 16, 2020 and March 31, 2020 for the deferral of rent or lease payments due in the period between April 1, 2020 and July 1, 2020. This Agreement should be in the prescribed form, and must include provisions for the repayment of the deferred rent payments.

How will the government provide the rent guarantee?

The Government of Nova Scotia will establish an indemnity fund for Qualified Landlords for actual, direct damages arising from a grant of rent deferral. The total indemnity shall be the direct damages flowing from a rent deferral, but cannot exceed more than $15,000 per tenant ($5,000/per month/per tenant). The Qualified Landlord will only be able to recover a maximum of $50,000.

The Qualified Landlord must make reasonable commercial efforts to mitigate its damages prior to filing a claim under the CRDSP. The Qualified Landlord will be required to swear an affidavit to substantiate their damages were incurred as a result of granting a rent deferral.

What is the application timeline?

April 1, 2020 – Qualified Landlords and Qualified Tenants must have agreed to rent deferral.

April 3, 2020 – Qualified Landlords must notify the Department of Business via email (NSRentDeferral@novascotia.ca) of their intent to register a Qualified Rent Deferral Agreement for eligibility for the CRSDP, including the Legal Name of the Qualified Landlord, and for each proposed agreement, the legal name of the Qualified Business and the address of the establishment.

April 30, 2020 – Qualified Landlords must apply to the Government of Nova Scotia for participation in the CRSDP, and deliver to the Department of Business all required information and documentation, including a completed application form and a copy of the Qualified Deferral Agreement.

June 30, 2021 – Qualified Landlords must file with the Government of Nova Scotia a notice of any claim or potential claim under CRDSP.

September 30, 2021 – final claims for any indemnity must be filed with the Government of Nova Scotia, and landlords must include evidence satisfactory to the Department that they have undertaken commercially reasonable measures to collect deferred rent.

Payments to landlords of deferred rent shall only be issued by the Government of Nova Scotia once a complete review of the final claim is complete. No payments shall be made prior to June 30, 2021.

Suspension of Landlord Remedial Rights

On March 27, 2020, the Minister of Municipal Affairs and Housing issued a Direction pursuant to the expanded powers under the Health Protection Act and the Emergency Management Act in response to the ongoing COVID-19 outbreak. For the protection of property, the Minister ordered a Province-wide prohibition on the following:

All retail and other commercial landlords are prohibited from exercising the remedies of notice to quit or distress available under a commercial lease, commercial agreement, the Tenancy and Distress for Rent Act, or otherwise for rent due on or after March 22, 2020 from a retail or commercial tenant who has been required to close their business or their business has been substantially and directly restricted under the requirements of a Medical Officer’s order issued under the Health Protection Act.

Landlords of tenants impacted by, or forced to close by, the COVID-19 response are thus unable to exercise remedies of notices to quit or distress under any commercial lease agreement, and tenants will be able to remain on the leased premises even in the event of default. While temporary, this drastically impacts the ability of landlords to recover against tenants in default for the foreseeable future.

The rent deferral program is designed to offset the risk faced by landlords in the above scenario, where tenants are unable to pay their rent now but will be allowed to remain on the premises for the time being. The rent deferral program would allow for landlords to offset some of the risk incurred by allowing the tenants in this position to satisfy their leasing obligations over the remainder of the lease agreement.

The situation is constantly changing, and further information may become available in the coming days. We will be keeping apprised of updates to this program and provide further information as it becomes available. If you or your business is interested in pursuing this option, please get in contact with us.

This update is intended for general information only. If you have questions about the above, please contact a member of our Commercial Transactions / Agreements or Litigation & Alternative Dispute Resolution groups.

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